1. To Buy or To Build Is it really one or the other? APPA New Generation Workshop Portland, Oregon August 1, 2007

2. 2 The Constellation Energy Group Companies Constellation Energy Group (NYSEG: CEG) Fortune 200 competitive energy company hq’d in Baltimore Subsidiaries: Constellation Energy Resources Wholesale (Constellation Energy Commodities Group) and Retail (Constellation NewEnergy) Marketing 44,000 MW of load served, including Approximately 14,000 MW of “Provider of last resort” NE and Mid-Atlantic and Municipal load (wholesale) Approximately 16,000 MW of retail load (4,000 retail commercial and industrial customers) Constellation Generation Group 8800 MW of generation (predominantly nuclear and coal) Strategic nuclear partnerships Baltimore Gas & Electric Distribution and Transmission serving 1.1 million electric and 600,000 gas customers.

3. 3 “Buy vs. Build” Discussion Agenda The role and history of competition and the build decision The role of competition and the buy decision Risk management and the buy vs. build decision Does it have to be one or the other?

4. 4 Role/History of competition in the build decision Traditional Cost-of-Service: IRP Approach Relies on regulatory guarantees for investment that leaves customers exposed to risk Marginally better than COS; but still relies on regulatory guarantees, and provides little operational risk management to consumers Stable market structures create predictable forward price signals that incent investment; suppliers manage construction and operational risks, including fuel price and customer attrition Traditional PPA: Competition to Build Little (no) Risk management thereafter Merchant Investment - Wholesale market price signals incent investment Managed risks No regulatory guarantees

5. 5 Traditional Cost of Service: IRP approach Stranded cost recovery Rate of return on rate-base creates incentive to spend. PPA approach (70’s/early 80’s) Construction cost risks are transferred to developer Competition secured lowest cost construction Spurred significant technological advances through heat rate improvements Merchant Investment (late 80’s/90’s) Tightening market supply/demand fundamentals Wholesale market restructuring Markets would support and reward new investment Thousands of new MWs built Transfer of construction cost risks AND operating risks – fuel and O&M Results under the three forms of investment

6. 6 What Happened to the Merchant Model? Price spikes led to new call for price mitigation. Market design changes devalued merchant investment. Wholesale markets not producing price signals for new investment. Dramatic increases in fuel (coal, gas, uranium) coupled with expiration of retail rate freezes Renewed calls for Long Term Contracts similar to PPA paradigm and/or return to traditional cost of service. Development of capacity markets in organized markets.

7. 7 It depends on what you are buying: Want to Buy a Power Plant? Competition can be brought to bear through PPA approach or turnkey construction contract. Want to Buy load management service? Competition broadens to a much wider range of products, including energy, capacity, ancillary services, renewable requirements, emission reduction requirements – “full requirements service” Significantly higher level of required risk management Can lead to significantly higher level of competition. Role of Competition in the Buy Decision

8. 8 Full Requirements Service Products Benefits Transfer of risk from utility/ratepayers to supplier Stable, predictable price for consumers Energy Ancillary Services Capacity Transmission Charges Congestion Costs Electrical Losses System Admin Charges Quantities that match both changes in hourly electric demand & movement of customers to & from retail competitive supply Including energy reserves, voltage reduction & other system operation charges Or other resource adequacy products in matching quantities (In some cases) Costs associated with transmission congestion Losses associated with energy transmission Scheduling, dispatch & administrative services Full Requirements Product

9. 9 Full Requirements Service and the Buy Decision Connecting the Two Full Requirements Service represents structured transactions that provides a wide array of service and products: capacity, load following energy, and ancillary services. Serving full requirements load requires extensive risk management and hedging expertise found in the competitive wholesale market, including portfolio management. Competition to provide full requirements service enhances and supports wholesale market liquidity, transparency, and stability.

10. 10 Full Requirements Service and the Build Decision Connecting the Two When wholesale market structures provide fair, transparent price signals that reflect the fundamental supply and demand realities, suppliers will identify ways to minimize their costs and thus their ability to hedge load serving obligations. Thus, wholesale market design stability and robust load serving opportunities will create the “push” for infrastructure when and where it is needed, and the opportunity to serve wholesale and retail loads provides the “pull.”

11. 11 Buy Versus Build It does not need to be one or the other Buying full requirements service can be integrated with new build. Allows optimization of plant value. Brings portfolio benefits and other risk management services to load serving obligation. Reduces and/or eliminates stranded cost risk.